S&P 2600 Continues to Act as Price Magnet

Editor’s note: this column was originally published on Capital Essence’s CEM News. It’s being republished as a bonus for the loyal readers. For more information about subscribing to CEM News, please click here.


Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Wednesday January 9, 2019.

We’ve noted in the previous Market Outlook that: “Monday’s upside follow-through confirmed last week’s bullish breakout and opened up for a test of the more important resistance near the 2600-2640 zone.”  As anticipated, stocks rose Tuesday as upbeat reports surrounding U.S.-China trade discussions helped keep the positive sentiment and buying interest intact.  For the day, the S&P rose 0.97 percent to 2,574.41. The Dow Jones Industrial Average climbed 1.1 percent to 23,787.45.  The Nasdaq Composite advanced 1.1 percent to 6,897.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell more than 4 percent to 20.47.

Financial sector was a notable underperformer on Tuesday but managed to claw its way back to its flat line after being down more than 1 percent intraday as the flattening yield curve as headwinds for the group.  After tumbling nearly 15 in 2018, the Financial Select Sector SPDR ETF (XLF) is up more than 2 percent YTD, slightly underperformed the S&P.  Now the question is whether Tuesday’s weakness is a pause that refreshes or it’s a beginning of something worse?  Below is an update look at a trade in XLF.

The graphics below are from our “U.S. Market Trading Map”, show the near-term technical bias and trading ranges.  As shown, the underlying is in a short-term bullish trend when the price bars are painted in green.  The underlying is in a short-term bearish trend when the price bars are painted in red.  The yellow bars identify period of neutral or sideways trading pattern.  Additionally, the light-blue shading represents the short-term trading range.  A move above or below that range is considered overbought (as represents by the red shading) or oversold (as represents by the dark-green shading).  Readings above or below the red and green shaded areas are considered extremely overbought or extremely oversold.

Chart 1.1 – Financial Select Sector SPDR ETF (weekly)

Our “U.S. Market Trading Map” painted XLF bars in red (sell) – see area ‘A’ in the chart.  Over the past few weeks, XLF has been trending higher in a short-term corrective mode after the late 2018 massive selloff found support near the 4-year moving average.  The rally is testing resistance at the 38.2% Fibonacci retracement of the 2015-2018 upswing.  In accordance to the Japanese candlestick pattern recognition, this week’s spinning top bar indicated uncertainty.  Technically speaking, when a spinning top forms after an upswing, it can be an indication of a pending reversal, as the indecision in the market is representative of the buyers losing momentum. XLF has minor support near 23.80.  A close below that level will bring the December low, just above 22, into view.  That level roughly corresponds with the 50% Fibonacci retracement.

XLF has resistance near 25.  Short-term traders could use that level as the logical level to measure risk against.

Chart 1.2   – S&P 500 index (daily)

Short-term technical outlook remains bullish (buy).  Last changed January 4, 2019 from bearish (sell) (see area ‘A’ in the chart).

[Note: for more details analysis, please take a look at our “US Market ETF Trading Map”]

S&P extended recent winning streak, heading toward the important sentiment 2600 mark after breaking out above the 38.2% Fibonacci retracement.  Money Flow measure trended higher from below the zero line.  The indication is on a verge of turning positive, suggesting that selling pressure had eased.   This is a positive development but let’s notice that resistance is strong between 2600-2640 so it should not be surprised to see some profit taking actives in the coming days.

Short-term trading range: 2480 to 2640.  S&P has minor support near 2530. A close below that level has measured move to around 2480.  The index has resistance near 2600-2640.  Given the damages done over the past weeks, there is a no reason to turn particularly bullish until this zone is eclipsed.

Long-term trading range: 2340 to 2750.  S&P has support near 2340.  A close below that level on a monthly basis has measured move to 1940.  The index has resistance near 2660.  A close above that level has measured move to 2750.

In summary, while S&P’s 2600 continues to act as price magnet, market internal does not appear strong enough to generate sustain breakouts.  As for strategy, traders should consider taking profits into short-term rallies.


Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

© All rights reserved and actively enforced.
Note: This is a free edition of The Market Outlook, a daily CEM News subscriber newsletter. To get this column before market opens together with hundreds of technical trading ideas (including stocks and ETFs) every month, please click here.
Subscribe to CEM News to receive more in-depth research from Capital Essence.